Avoid This Biotech Stock

Editor's note: This article is a stock pitch made by a member on CAPS, The Motley Fool's free investing community. The pitch is published UNEDITED and is the opinion of the CAPS member whose pitch it is, in this case: zzlangerhans.

Each week, Motley Fool editors cull a top stock idea from the pitches made on CAPS, the Motley Fool's 180,000-member free investing community. Want your idea considered for this series? Make a compelling pitch on CAPS with a minimum length of 400 words. Want to follow our weekly picks? Subscribe to our RSS feed or follow us on Twitter.

Company Zogenix (Nasdaq: ZGNX  )
Submitted By zzlangerhans
Member Rating 99.18
Submitted On Dec. 23, 2011
Stock Price at Underperform Recommendation $1.74

 

Zogenix Profile

Star Rating (out of 5) *
Headquarters San Diego
Industry Biotechnology
Market Cap $163 million

Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS.

This week's pitch:

I've been itching to red thumb Zogenix since March, but a year filled with premature red thumbs made me too gun shy and the stock never rose up to meet my threshold. Now I find myself finally placing my red thumb at an entry price two thirds lower than when I started following the stock. I should have gone with my first instincts.

Zogenix suffers from the same problem as Somaxon, which Labopharm and many others suffered from before. They market a drug with limited commercial appeal whose revenues don't come close to the cost of producing and selling it. In the case of Zogenix it's superfluous triptan Sumavel, whose revenues seem to have topped out under 9M per quarter. Partner Astellas finally called it quits on Sumavel this month, which won't do much good for Zogenix's 20M+ quarterly burn rate.

The company has fortified their cash position recently at the expense of heavy dilution and debt, which can only control the hemorrhage temporarily. Their only long-term hope is Zohydro controlled-release hydrocodone for chronic pain, which should be submitted to the FDA in Q2 2012. You read that right. Their future rests on the regulatory and commercial success of a new prescription opiate. I'm sure investors in Pain Therapeutics and Acura are weeping quietly right now.

Follow this!
Want to follow our weekly picks? Subscribe to our RSS feed or follow us on Twitter.

The Motley Fool is investors writing for investors. Dan Dzombak did not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (15) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 06, 2012, at 11:33 AM, pharma4u wrote:

    I totally agree with you and I know a great deal abut this company and how they operate. The needle free (generic sumatriptan) system that they use hurts more than a needle, especially if injected with a very slight inaccuracy. The sales force is having a very difficult time marketing this product (and they are being pushed to the bone and are mentally exhausted). Coverage (medical) will always be an issue. Another pain product "so what" there are five new pain products ready to hit the market. Purdue etc., and the fact that this is a long acting PURE OXY is coming at the wrong time (there was a recent NBC news article date December 26, 2011 which explains much about what the public is concerned about and the recent killing of a DEA agent in a failed attempt to steal OXY in the State of New York), but I cannot find to reference. Doctors are more interested in protecting themselves against the wrath of the FDA/DEA from abusive distribution practices and addicts. It looks like there is a short squeeze right now, the stock is technically right to move, but this is just a short squeeze and it should be monitored and examined as to who is doing what with the stock. Zogenix earnings might show improvement over last quarter when they are published, but this will be a small improvement and they will dip again the following quarter. They have until June to survive without going to the well again. Good Luck.

  • Report this Comment On January 06, 2012, at 12:23 PM, bodybag2006 wrote:

    I see William Blair disagrees on your analysis with their outperform rating today...might you have overlooked something?

  • Report this Comment On January 06, 2012, at 12:31 PM, pharma4u wrote:

    Just to add to my comment posted above. Zogenix will need another $100M in June to market their new pain drug Zohydro (if it gets approved) in its present form (as it is a long acting product that can be crushed by addicts to dose dump). If all goes well they will be able to market/sell their product in the second quarter of 2013. It will be a third tier product (maybe with some HMO access) competing against long acting generic MS Contin and Kadian (long acting Morphine) set to go generic in March. I believe I read that they have a US license ONLY to sell the drug (please confirm). This will be a tough sell with a group that knows nothing about selling to pain management docs who are skittish right now and being ultra careful in what they prescribe. Good Luck.

  • Report this Comment On January 06, 2012, at 12:36 PM, pharma4u wrote:

    William Blair has no clue. I have been in this market for 30+ years as Broker, Bond Trader commodities trader, index and options trader and had my own radio show. And was the top producing Broker in the nation in 1983. The rest of the group placing an out-perform on the stock is part of the underwriting team. It may be the beginnings of a short squeeze (which would be the only positive). I wish you good luck.

  • Report this Comment On January 06, 2012, at 3:37 PM, pharma4u wrote:

    I will make one more comment to zzlangerhans excellent observation, and probably won't waste my time commenting again on anything for a long while. Zogenix has one marketable product Sumavel Dosepro and for most part Zogenix specialty sales persons (who are likely very good at what they do) are selling to a market that is a niche, within a niche, within a niche ... they have a very tough sell, minus the reps that have a head-ache clinic in their territory and a subsequent tie to that clinic. My research suggests and I believe that most of the Sumavel sales are coming from specialty migraine clinics where the primary doc has been made a paid speaker (to informally tout the product and its subsequent benefits), thus he (the doc) becomes dedicated to the promotion and sale of the product. The company claims Zohydro is safer because it is sans acetaminophen. But it is pure OXY that can be crushed ... dumping the dose. This product will also turn out to be living in a saturated niche (although significantly larger), but much more competitive. Fighting against existing generic products that can match Zohydro's benefits, which are available for consumption and pain relief now. I wish Zogenix the best of luck and good fortune, but it is going to be a rough road for them and a very rough road for a sizable percentage of their sales staff.

  • Report this Comment On January 09, 2012, at 5:04 PM, southbayaero wrote:

    Pharma4u you have some valid points, but first off Zohydro is not "pure OXY" (it's pure hydrocodone, not oxycodone), and secondly this article and Pharma4u do not even mention the most important fact of this novel pain killing formulation, it's Acetaminophen FREE! Acetaminophen has long been known for its liver toxicity, and in recent years the FDA has started imposing thresholds for Acetaminophen content. Therefore, doctors and the entire medical community are aware of the need and are likely to welcome an effective Acetaminophen free pain killer. Based upon the phase III clinical trial results, which were very positive for efficacy and safety, this drug is almost certainly going to be approved. From the financial perspective, I put my money on Cam Garner and the rest of the insiders that have been down this road before (with great success) and personally invested heavily in recent months.

  • Report this Comment On January 09, 2012, at 7:35 PM, pharma4u wrote:

    Hydro sorry (10 times more powerful than Vicodin) "Senator Charles Schumer, a Democrat, wrote Food and Drug Administration Commissioner Margaret Hamburg urging her to proceed with caution before allowing what he called “super” drugs that are 10 times more powerful than Vicodin on the market." "Zogenix and at least three other companies are researching pure-form hydrocodone pain relievers, according to a statement from Schumer." I knew I had made the error when I wrote this comment. It means absolutely nothing in the big picture. I wanted to see if someone would catch it." We will see what happens. Garner moves from company to company doing the same thing ... I won't tell you what that is ... (nicely) please figure it out for yourself.

    I wish you Good Luck.

  • Report this Comment On January 10, 2012, at 4:15 PM, southbayaero wrote:

    Another valid point, there are politics at play here. Just to be clear, Vicodin is a hydrocodone and acetaminophen blend. Abuse is certainly a concern (and one Zogenix has had to address in their NDA work), but the reality is abusers already have many options, and statistically they seem to prefer oxycodone (Oxycotin) to hydrocodone. So the question is, will the FDA block a drug that will reduce liver damage for chronic pain sufferers (something it has professed to be concerned with)? Will they fail to protect the health of the vast majority of legitimate users in a feeble attempt to protect the very few who might choose to abuse it? I hope common sense will prevail. People wonder why health care costs so much, here is a perfect example. A company spends hundreds of millions of dollars to bring a novel formulation to market, meets all of the incredibly stringent FDA requirements, yet still faces a risk to their investment because of some politician who is more concerned with addicts than patients. Anyways, this drug will be approved, but financially speaking, it’s more a question of how the FDA will regulate it. Will it be similar to Oxycotin, which has very tight distribution requirements, or will it be similar to other hydrocodone alternatives (like Vicodin) which are more readily available? The details of this obviously have direct implications on market share and the overall profitability of Zohydro.

    I wish you all the best with your investments, but I would contend that Zogenix will grow over coming months and is a possible buyout candidate following the Zohydro launch.

  • Report this Comment On January 10, 2012, at 4:50 PM, pharma4u wrote:

    Zohydro is yet another long acting opiate, again there multiple long acting opiates on the market without the acetaminophen blend. There is nothing novel about Zohydro. What would be a novel approach would be to develop Zohydro with an antagonist core which is what the FDA should push for and what I hope will happen. Many pain Docs (unpaid promoters) do not see the need for yet another "me too" drug with huge abuse potential. If you think a third tier drug is going to be a benefit to health care costs? You have no idea what you are talking about ... when there are several generic equivalents already on the market. Also, abuse of painkillers is not limited to a few individuals, it's significant, and the market on the street for opiates is escalating "ten fold". I am hopeful that the FDA will require Zogenix to include an antagonist into Zohydro's core, then it would truly be safe and useful. Zohydro is not approved yet and you are running on the assumption that is going to be approved by the FDA in its present form without question. Be careful what you say especially if you work for Zogenix as you are trying to market an unapproved drug.

  • Report this Comment On January 12, 2012, at 12:36 PM, southbayaero wrote:

    Zohydro IS novel in the sense that it is the first long acting acetaminophen-free hydrocodone formulation. If it was not a novel formulation, they would not need to file for an NDA. Therefore there are no equivalent generics, and if approved, Zogenix would hold patent rights. Full disclosure, I have a small investment in Zogenix, but am in no way connected to the company or do I know anyone who is. A close family member of mine is a consultant in the pharmaceutical industry, and we have been following this company for the past year. The intent of my response was to inform those who read this article that the author failed to address the real potential of Zogenix's most promising product (Zohydro). Most rating groups currently have ZGNX as a "strong buy", but as always investors should do their own prudent research. Pharma4u, may I ask why you are so passionate about this company? Do you attack all of your "shorts" so rigorously?

  • Report this Comment On January 12, 2012, at 5:55 PM, pharma4u wrote:

    I am not short, nor would I ever go short against this group. I think it is a sell on fundamentals, as I have already explained. It (Zogenix) nearing June 2012, and/or prior to another round of financing, will barely be a going concern. Frankly, if Zogenix was smart they would lay off their entire sales force (with the exception of a skeleton staff to cover head-ache clinics), and use a contract sales force, and telephonic customer service to manage existing accounts. If their pain drug does get approved, then they should initially start selling Zohydro by way of a contract sales force (are they going to use present sales staff, unschooled in Pain Management to sell Zohydro)? Mark my words ... Zogenix (unless they reorganize), will need an absolute minimum of 100 million in June, and that's just to keep the doors open to the anticipated approval date. Yes, fourth quarter numbers will show improvement, but this is "head-ache" season and second quarter numbers will show more of the same with a slight increase in sales over last year, but they will still be running a nearly 20 million quarter over quarter loss. Also know this … the co-pay is next to zero (with a co-pay card), so the profit margins will always be thin as the product (Sumavel) is somewhat expensive (compared to a needle, or generic pill) to manufacture. The reason why the Astellas' contract sales force was unsuccessful with Sumavel was that they were (still are for two months) selling to GP's … an almost impossible sell. If you give them actual viable accounts they will be successful. Now I want to tell you why I am passionate. Google Oxycotin, Roxy, or Morphine withdrawal and read some of those links and chat strings. An off-duty DEA agent was recently killed trying to thwart a hydrocodone bust. Both Oxycotin and Hydrocodone are abused nearly equally, and both are valuable on the street. There are pain docs in every state that write prescriptions with both hands! Oxycotin goes for more than $100.00 for a 90MG tablet on the street. Ask Tiger Woods or Rush Limbaugh, DEA, or your local police, or someone that you can actually talk to that has abused the drug, to see if they believe another "me-too" drug should be allowed to be approved. A "me-too" drug … one could consider same a dangerous weapon if you know the actual facts. If the original investors can afford to wait for Zogenix to place an antagonist in the core of Zohydro, then Zogenix would have a viable alternative (except for three drugs that I am aware of currently on the market, and one about to be approved that is truly novel), to what is already on the market (that is considered more of the same) and ultimately a valuable asset. Zohydro should not be approved in its present form without an antagonist added to its core; and I sincerely hope enough pressure is placed on the FDA to thwart the approval process. I am a financial market expert. I have held multiple brokerage licenses in multiple countries and have 30 plus years of experience in the markets. I study the markets daily, but I still follow others that know a great amount more than I do specific to the overall market. So, I do not expect, or desire, you to take any of my investment advice ever, but please know what you are talking about before you decide to respond again.

  • Report this Comment On January 18, 2012, at 9:54 PM, allday25 wrote:

    pharm4u you maybe a stock expert but sir have no idea what your talking about when it comes to opiate pain meds... hydrocodone is one of the weakest opiates on the market besides codeine and others like darvocet. so when compared to morphine oxycodone or oxymorphone or especially fent , hydrocodone is a better option . now i know it is abused alot all drugs that cause euphoria are, ppl want to feel good and escape. now your prolly right about all the stuff about the company and its financials i just wanted you to know that compared to the opiates already out on the market hydrocodone should be the least of your worries

  • Report this Comment On January 19, 2012, at 2:22 PM, pharma4u wrote:

    You seem to be a very nice person, despite the fact that you did not run your comments through a spell check. Based on my comments thus far, I do not believe very many people actually read and absorb what anyone has to say about Zogenix in this forum. I will say this: who do you think the four analysts touting this stock as a "strong buy" (since day one) work for? My comments here are also designed to show you what you need to know about a company prior to committing to investing. You may be a buyer (wonderful), I hope you make a ton of money. I'm not, because I believe STRONGLY that the company (Zogenix) needs to re-structure (as I stated in an earlier post). Based on fundamentals the stock should be trading at $1.31 (equivalent to a long term option). Knowing a great deal about the pain drug market, I STRONGLY believe that this (Zohydro) is yet another "me too" product (and as shown through research) designed to treat moderate to severe pain patients. It has dose dumping potential and is destined for abuse without an antagonist inserted within its core, or without a tamper resistant delivery system. Pain docs will be reluctant to use this drug in its present form, as there are too many safer options available. I study the world markets and not Zogenix. I learn from Gartman and others, but the fact that pure Hydro may be considered for approval by the FDA without an antagonist in its core is freighting. I STRONGLY believe the FDA will make the right decision and slow down the approval process for this drug. I wish you well and I wish you good fortune in choosing the right investments. Zogenix may be one of those investments, but today it would have to be a short squeeze and maybe four years from now it will have to show incredible promise as a highly diluted stock. It is a sell on fundamentals.

  • Report this Comment On January 19, 2012, at 11:37 PM, pharma4u wrote:

    I meant to say frightening. I too should have proofed my comment. I believe the only chance they (Zogenix) have to further avoid significant dilution is to squeeze this stock to the max. The problem is a squeeze, given the present financial circumstances, and or realities, would look more like stock manipulation … Zogenix is in dire need of legitimate news that they can then motivate / promote from. If they (Zogenix) do not get something legitimate to work with by June expect another $2.00+- secondary offering of 80,000+ million shares. Again, if they wish slow the bleeding and “come back to earth”, they need to reorganize. Dog and pony shows work, but they need real substance to show the world at some point. There will come a day (maybe tomorrow) when someone (institutional Investor or otherwise) will want to exit, and at this point Zogenix's exit strategy for investors is lacking. I like the idea of the planned commercial, but a commercial without garnering additional prescriptions is only of short term benefit.

  • Report this Comment On February 12, 2013, at 1:58 PM, Rennips wrote:

    Pharm4u- They do not manufacture a 90mg oxycodone pill. The highest is 80mg in an extended release which is exclusively available by Purdue known as Oxycontin. The highest ir is 30mg. Also there is absolutely no market currently for an extended release pure hydrocodone pill. If this pill hits the market a lot of doctors will switch their patients from oxy to this pill. This stock is a great buy currently and I know the FDA will approve the sale of this product which once it hits the market it is going to see Zogenix be bought out by Purdue so that they can control the market for pain management.

Add your comment.

DocumentId: 1753146, ~/Articles/ArticleHandler.aspx, 4/20/2014 7:19:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement